Editorial 1 : At the upcoming World Health Assembly, a toolkit to prepare nations for pandemics
Context
When the World Health Assembly (WHA) meets next week, it will create a historic milestone for global public health.
About
- A package of amendments, based on 300 proposals made by member countries after the pandemic, will be the star of the agenda.
- These amendments to the International Health Regulations will target improving the ability of countries to respond to public health emergencies of international concern.
The International Health Regulations (IHR)
- It was first adopted by the WHA in 1969 and last revised in 2005, were conceived to maximise collective efforts to manage public health events while minimising disruption to travel and trade.
- There are 196 State Parties to the IHR, comprising all 194 WHO Member States plus Liechtenstein and the Holy See.
- The IHR provides an overarching legal framework that defines countries’ rights and obligations in handling public health events and emergencies that have the potential to cross borders.
- They also introduce important safeguards to protect the rights of travellers and other persons in relation to the treatment of personal data, informed consent and non-discrimination in the application of health measures under the Regulations.
- Therefore, the IHR is an instrument of international law that is legally binding on 196 countries.
Surveillance systems
- The IHR requires that all countries have surveillance systems capable of detecting acute public health events in a timely manner, assessing these events, reporting to the WHO those that may constitute a public health emergency of international concern, and responding to public health risks and emergencies.
- The goal of country implementation is to limit the spread of health risks to neighbouring countries and to prevent unwarranted travel and trade restrictions.
- This is a vital tool for the management of multiple public health emergencies, including COVID-19, has demonstrated important areas in which they could be strengthened.
- Countries have come together around improved international mechanisms to protect every person in the world and future generations from the impact of epidemics and pandemics.
- It has been a long process to achieve consensus on the majority of amendments. This shows the importance the world places on being able to prepare effectively for and respond better to epidemic and pandemic threats, and that there is strong international consensus on how to go about international public health protection.
- This process has been running in parallel with an intergovernmental process to develop an international agreement on pandemic prevention, preparedness, and response.
- The draft pandemic agreement, with its own Member State-led negotiating process, is also due to go to the World Health Assembly.
Way forward
- A potential new pandemic agreement and the amended IHRs would be complementary to international instruments designed and negotiated by Member States to help countries protect their peoples better from future pandemic threats.
- The IHR focuses on building countries’ capacities to detect and respond to public health events, which could take on international dimensions, while the draft pandemic accord focuses on a coordinated international response to pandemics, with equitable access to vaccines, therapeutics, and diagnostics at the centre.
Editorial 2 : Rising debt strains household savings
Context
The bone of contention in the recent debate has been the drastic fall in household net financial savings to GDP ratio during 2022-23 on account of a higher borrowing to GDP ratio.
Not a mere change in savings pattern
- The Chief Economic Advisor (CEA) to the Government of India has interpreted this trend as a mere shift in the composition of household savings, where households are argued to incur greater borrowing (or reduce net financial savings) solely to finance higher physical savings (investment).
- The household savings to GDP ratio is the sum of its net financial savings to GDP ratio, physical savings to GDP ratio and gold and, ornaments.
- A mere shift in the composition of savings would have kept the overall household savings to GDP ratio unchanged, with lower net financial savings to GDP ratio or higher borrowing to GDP ratio being fully offset by higher physical savings to GDP ratio.
- The net financial savings to GDP ratio declined by 2.5 percentage points, whereas the physical savings to GDP ratio increased only by 0.3 percentage points.
- The household borrowing to GDP ratio increased by 2 percentage points, significantly more than the increase in the physical savings to GDP ratio.
- With the gold savings to GDP ratio remaining largely unchanged, the household savings to GDP ratio declined by 1.7 percentage points.
- In short, the phenomenon of a household’s higher borrowing to GDP ratio cannot be explained exclusively in terms of change in savings composition.
- The lower net financial savings to GDP ratio and higher borrowing to GDP ratio largely reflects a household’s need to finance greater interest payment commitments at a given income amid higher interest rates and debt-income ratio, leading to an increase in financial distress of the household.
- A positive nominal growth rate of savings neither addresses the historic fall in net-financial savings to GDP ratio nor refutes the explanation of the higher borrowing to GDP ratio and the phenomenon of greater interest payment burden of the household that we pointed out.
Signs of structural shift
- Since the share of interest payment in household income (interest payment burden) is the product of interest rate and debt-income ratio, any increase in the latter would lead to a greater interest payment-income ratio at a given interest rate. The recent period has been associated with a sharp rise in both these variables.
- The debt-income ratio of the household can potentially change through two distinct factors.
- The first factor pertains to a higher net borrowing-income ratio of the household, where net borrowing is the difference between total borrowing and interest payments.
- The second route involves factors that are largely exogenous to the household’s decisions-namely, the interest rate on the outstanding debt and the nominal income growth rate of the household.
- Any increase in interest rates or reduction in nominal income growth rate increases a household’s debt-income ratio during a particular period.
- If the growth in interest payments outweighs income growth, the debt-income ratio will continue to grow.
- Such mechanisms can be described as “Fisher dynamics” following Irving Fisher, who explained the phenomenon of rising debt-income ratio in terms of changes in interest rate and nominal income growth rate.
- Starting from the pre-COVID growth slowdown of 2019-20, the Indian economy has typically been characterised by such Fisher dynamics.
- The post-COVID period has seen a sharp rise in the ratio between nominal debt and nominal income of the household, largely on account of a lower nominal income growth rate.
Macroeconomic challenges
- The comforting news at the present juncture is that India’s debt servicing ratio is still lower than that of many countries. But with the emergence of the Fisher dynamics, there are at least two unique challenges that confront the Indian economy.
- The first challenge pertains to decreasing the gap between interest rate and income growth and slowing down the growth of the debt-income ratio of the household.
- The second challenge involves stemming the possibility of downward adjustment of aggregate demand amid high interest payment and debt commitments of the household. Such possibilities emerge when households tend to maintain stock-flow norms in debt and wealth management by curtailing their consumption expenditure. The sharp decline in the consumption to GDP ratio in 2023-24 points towards such a possibility.
Conclusion
These challenges point towards the need to include an additional macroeconomic policy target to stimulate and support household income growth.